In a recent webcast we explored how globalization has increased currency risk and posed new challenges for investment managers.
Given an increasing portion of revenue that many companies harvest from multiple countries, managers must make additional considerations when monitoring portfolio risk.
The emphasis of discussion came from the headlines: How are firms responding to the European sovereign debt crisis? Furthermore, how can they control their currency exposure in this environment?
Below, we briefly summarize some of the main themes contained in that talk.
- If you don't control currency exposure, you're held ransom by it
- Volatility in general runs up when fear increases
- An exposure-hedged portfolio will experience the least losses, in our model, if one or more country leaves the euro
- Most people focus on factor, idiosyncratic risk, and other types rather than currency risk
- One can stress test various countries leavnig the euro due to interest rate parity relationships
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